How to build a successful retail system

What does footy, meat pies and the Dick Smith story teach us about retail success?

An increase in sales revenue hides a multitude of sins. If profits increase, executive bonuses increase. In our American-influenced business culture we obsess about results and outputs. (Every proposal I write list the key deliverables.)

There is a mucho overtone to our gleeful acclamation: ‘Look at the score board!’

INPUT >> PROCESS >> OUTPUT is the archetypal structure of a system and holds true for the system of retail. (See diagram for a Retail System in this post.)

The most common OUTPUTS businesses seek are revenues and the distant cousin, profit. This is the Holy Grail that is pursued by executives and that is hardwired into the culture of most organisations. We live by the mantra of ‘garbage in is garbage out’. It is commonly said and commonly believed. But it is not even close to being a truth – and in fact is a counter-productive approach.

Most struggling retailers that I have worked with directly has in poor access to data. Their technology does not provide information that allows you to run an effective business. They don’t have a scoreboard and I am a great believer in getting the metrics right and measuring the right things. This is crucial to successful business, but focussing on the profits/sales etc will not fix your business.

Metrics are almost invariably historic. They reflect outputs achieved. You can no more alter your sales by focusing on sales than you can improve the taste of a meat pie by focussing on the meat pie. What is done is done.

Strategically astute managers understand that the system is NOT a matter of Garbage In Garbage Out. Instead, you should be changing the Inputs or changing the Processes. This is the ONLY WAY to alter the outputs. (Focus on SELLING not on REVENUE.)

Garbage in, garbage out assumes there is no ‘transformation process’. There is. At least there is an opportunity to transform the input:

Sewerage in, drinking water out.

Discarded clothes in, charitable revenues out.

Starting off with the right INPUTS will make things easier, but if you inherited a ‘difficult’ suite of resources, it is always possible to turn it around. The middle (process) stage is when all the WORK happens. Maybe that is what scares people?

If you identify the critical inputs (see diagram) and the core processes and focus your attention on fixing those, the results will happen.

Consider the Dick Smith turnaround story: a business bought (effectively) for less than $100m is turned around within a year to be re-floated at $600m.

I have no inside knowledge and cannot judge the people. Maybe the retail team at Anchorage Capital really are geniuses and the Woolworths executives failed miserably. But the comment by an ex-employee indicates that the in the short time available to them, the turnaround was not focussed on the core processes, but rather on addressing the symptoms (outputs). If this is true, then it is exactly what I am advocating against.

Play the game, not the scoreboard. If the scoreboard reflects a poor result, dig deep to determine how you can play the game differently. If you are playing your scoreboard (and protecting your lead) the opponents invariably run away with the game.


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